Floor covering demand is highly correlated with interest rate cycles. Interest rate movements affect housing demand, non-residential building construction spending and transportation equipment shipments. Any interest rate decline stimulates flooring sales to households, businesses, builders and transportation equipment manufacturers.

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Currently, interest rates seem to be ending a sharp upward cycle as the Federal Reserve raised interest rates to fight the highest inflation levels in a decade. The Fed’s efforts to fight inflation caused mortgage rates to more than double between 2021 and 2023 resulting in a housing and floor coverings sales recession. The decline in housing demand took some air out of interest rates by the fourth quarter of 2023.

As mortgage rates moderated, single-family home permits and starts began to rebound and the decline in existing home sales slowed significantly. The sharp increases in consumer sentiment and builder confidence in early 2024 are signs these trends will continue into 2024.

The current situation mirrors historical patterns. The Federal Reserve increased interest rates in 2018 to slow the economy. Their action immediately cut housing demand causing the Fed to make a quick reversal the next year. Interest rates were cut again in 2020 to offset the adverse impact of the COVID-19 pandemic. Interest rates were cut to historic lows by early 2021 causing housing demand and flooring sales to soar over the next year. Housing prices surged along with rising demand contributing to inflationary pressures.

In response, the Federal Reserve sharply increased interest rates beginning in the spring of 2022 that caused housing demand and flooring sales to turn downward for five consecutive quarters. Mortgage rates, however, seemed to have peaked in the fall of 2023 which began to slow the decline in housing demand.

Any Federal Reserve interest rate cut could give an additional boost to the housing and floor covering market in the second half. Even two 25 basis point cuts by the Fed, one in the spring and one in the summer, will have an outsize effect on housing demand due to pent-up housing demand. Catalina estimates there was a shortfall of about 6 million housing unit completions (completions of single- and multifamily housing units built minus existing home demolitions) between 2012 and 2023.

Therefore, the Federal Reserve actions in 2024 could result in housing demand and flooring sales to increase once again. Catalina estimates mortgage rates could decline by about 15.0 percent by the fourth quarter of 2024 compared to the fourth quarter of 2023. This movement could cause housing demand to increase by double-digits by the fourth quarter and cause flooring square foot sales to grow by 8.1 percent in the last quarter of the year.

Are you preparing for the decline in interest rates and the recovery in floor coverings sales during 2024? The Catalina Floor Coverings Outlook 2024 Report (https://catalinareports.com/product/floor-coverings-industry-outlook-2024/) uncovers the actions needed to outperform industry growth and increase market share over the next year. The report also provides a five-year forecast by product. In addition, the report indicates how macro-economic trends will affect the builder, consumer and commercial markets.

To discuss the findings in this and other Catalina Research Floor Coverings Industry Reports, visit the website www.CatalinaReports.com, click on the title and review the contents and analyzes included in these ndustry investigations.